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September 07, 2016

Progress on PFM Reform in Liberia

The Liberian civil wars, which lasted for most of the 14 years from 1989 to 2003, destroyed much of the country’s public and private infrastructure, as well as its human capital. Most people tend to forget or play down the fact that the public finance system – essential for the effective planning and execution of the budget, as well as the efficient management of cash, public debt and overseas development assistance - had also collapsed. The advent of the Ellen Johnson-Sirleaf administration, in 2006, provided a signal for positive change.

Challenges were in abundance, with financial management and economic governance taking center-stage. The Ministry of Finance and Development Planning (formerly the Ministry of Finance) was challenged to develop and apply a mix of policy measures to rebuild the confidence of partners, create an enabling business environment, reduce the debt burden, and restore the faith of the citizens.

With support from the IMF, and the strong leadership of Antoinette Sayeh, the then Minister of Finance, a Public Finance Management (PFM) law was enacted in 2009, while the country achieved HIPC completion status in 2010. There was buzz throughout Monrovia that good things were on the horizon. It became necessary to work on mainstreaming the new law within the country’s governance architecture.

A few local professionals teamed up with international colleagues to spearhead the reforms. The language of the law replaced the “old fiscal rules”. The Bureau of General Accounting and the Office of the Comptroller General became a unified Office of the Comptroller and Accountant General. The former Budget Bureau morphed into a department within the Ministry of Finance, the debt and aid management frameworks were strengthened, and the Integrated Financial Management Information Systems (IFMIS) project was conceived.

It was critical that the momentum of reform be maintained. A Fiscal Affairs Department (FAD) report of June 2009 recommended the creation of a Unit to coordinate and keep track of the reforms. This gave birth to the PFM Reform Coordination Unit (RCU). In 2010, The Unit leveraged technical assistance from both the IMF and the World Bank to develop a comprehensive strategy and action plan. The endorsed strategy laid bare policy actions, intended outcomes, and related costs. Deepening of the reforms was well-anchored in the strategy.

The IFMIS roll-out was deemed a fiscal driver critical to transform budget management, transparency, accounting, treasury and financial reporting, and arrears management, within the overall financial management chain of the Government of Liberia. The IFMIS has already delivered many of its objectives. The system has been deployed in 36 ministries and agencies, accounting for over 62 percent of government expenditure. It has engendered an information and decision support system for policy and organizational effectiveness in Liberia. Marked improvements have been scored in other areas of PFM, for example: strengthening the capacity and independence of the General Auditing Commission, institutionalizing internal audit functions within the government and initiating regular public hearings conducted by the Public Accounts Committee of the National Legislature.

Fiscal decentralization is enshrined in the next generation of PFM actions and has great potential in the longer term to improve economic development, as well as local accountability. However, the decentralization initiative is beset with significant challenges, including in some areas a lack of a minimal level of infrastructure and human capital needed to drive the reforms. A cautious step-by-step approach to this reform is likely to yield the best results.

The results of the latest Public Expenditure and Financial Accountancy (PEFA) assessment of Liberia[2], carried out earlier this year, indicates useful progress in many areas of PFM. Thirteen indicators have improved compared to the 2012 assessment, underlining the returns achieved from the government’s investment in PFM reform and the support provided by the International Financial Institutions (IFIs) and donors. Nonetheless, many gaps and weaknesses in PFM systems remain to be filled, as a recent IMF mission on the efficiency of the country’s public infrastructure, and its public investment management practices has revealed. Technical assistance can play a leading role in this regard. A combination of country program visits interspersed with workshops for capacity building and targeted training can help to narrow these gaps and mitigate these weaknesses in the system.

AFRITAC West is another good source of support for country and regional capacity building. Such support needs to be leveraged by the authorities, so that training sessions can mostly be organized domestically for a critical mass of technicians. Since 2012, the World Bank’s Integrated Public Financial Management Reform Project (IPFMRP) has supported some important capacity building initiatives and a follow-on project is needed.

Implementing PFM reforms in Liberia has come with challenges in building both financial and human capacities. The identification and retention of change management champions can also be a challenge. While institutional arrangements can be barriers to implementing the changes that are required, the leadership of the entire Government and the MFDP is poised to cascade the reform agenda to the next level.

[1] Advisor to the IMF’s Executive Director for Liberia; formerly Coordinator of the PFM Reform Coordination Unit in the Ministry of Finance and Development Planning, Liberia.

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